Sinopec embraces China’s private capital reform

“In 2014, the company expects to make significant advances in its development by fully embracing reform, leading to corporate transformation, organizational vigor and stronger corporate values,” the chairman said.

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By BENJAMIN HAAS and AIBING GUO

Bloomberg

Sinopec, Asias biggest refiner, said it will push ahead
this year with a government-driven agenda to open up
state-controlled industries, as Chinas energy companies
search for private capital.

The company and domestic peer PetroChina are seeking private
investors for some units. Sinopec, officially known as China
Petroleum & Chemical Corp., will sell as much as 30% of
its oil retail business, in a sale Barclays estimates could
raise more than $20 billion. PetroChina and its parent China
National Petroleum Corp., are considering opening up areas
including pipelines, oil and gas exploration and refining to private capital.

In 2014, the company expects to make significant
advances in its development by fully embracing reform,
leading to corporate transformation, organizational vigor and
stronger corporate values, said Sinopec chairman Fu
Chengyu said.

Sinopec is the most tied to the Chinese economy of the
major oil companies and the economy might be grinding a bit
slower this year, said Simon Powell, head of oil and
gas research as CLSA. All the talk of reform is great,
restructuring the marketing business is great, but the bottom
line is ultimately driven by the domestic economy.

Reform Push

The refiner said oil and natural gas production rose 3.5% to
442.8 million bbl of oil equivalent last year. Gas output
increased 10% on 2012 levels. Sinopec forecast production of
363.8 million bbl of crude oil in 2014 and 706.2 billion
cubic feet of natural gas.

China is pushing the most aggressive reforms in more than a
decade as President Xi Jinping works to increase market
forces in the economy. The nation set a 7.5% target for
growth in 2014, matching last years goal, Premier Li
Keqiang told the annual legislature meeting in Beijing this
month. Chinas economy actually grew 7.7% in 2013.

Sinopec approved last month the plan to seek private
investors for its oil retail unit, which operates the
nations largest network of more than 30,000 fuel
stations.

We will continue to promote transformation and upgrades
with a focus on improving development quality and
efficiency, Fu said.

Capex Targets

The company set a capital expenditure target of 161.6 billion
yuan for this year, 4.2% lower than a year ago. Sinopec will
focus spending mainly on exploration and production, Fu said.

We will strengthen our exploration effort in shale gas
resources in Fuling to achieve significant development of
Chinas shale gas industry, he said.

China Petrochemical Corp., the
state-owned parent of Sinopec, has said it will build shale
gas capacity at its Fuling site to 5 billion cubic
meters/year by 2015, suggesting a national target of 6.5
billion cubic meters will be met or surpassed.

PetroChina, the countrys largest oil producer, is also
cutting expenditure. It said last week its spending target
for 2014 was 7.1% lower than the previous year. The company
reported net income rose 12% to 129.6 billion yuan last year,
beating the 125.7 billion yuan mean of 13 analyst estimates
compiled by Bloomberg.

With proven reserve cover in China now below nine years
and the company committed to its coal-to-chemical joint
ventures and still raising refining capacity, Sinopec may
have limited flexibility on spends unlike PetroChina,
the analysts said.

We continue to prefer PetroChina, which has higher
earnings growth, a stronger balance sheet and cheaper
valuations, according to the note.

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